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NCUA reports improving CU financials, proposes voluntary closing rule

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ALEXANDRIA, Va. (2/21/14)--The recent trend of positive financial results for the credit union system continued this week, with the National Credit Union Administration reporting continued declines in the number of CAMEL code 3, 4 and 5 credit unions.

NCUA CFO Mary Ann Woodson released the results during Thursday's February open board meeting.

The NCUA in its quarterly report on the status of the National Credit Union Share Insurance Fund said there are currently 307 CAMEL 4 and 5 credit unions, which represent 1.40% of insured shares, or approximately $12.1 billion. NCUA staff also noted that there are 1,480 CAMEL 3 credit unions, which represent 11.19% of insured shares, or $96.9 billion. Combined, insured shares in CAMEL 3, 4, and 5 credit unions represent approximately 12.6% of total insured shares.

According to the NCUA, the amount of assets in CAMEL code 3, 4 and 5 credit unions have decreased 40.5% since reaching a high in September 2010. "The continuation of these positive trends and other factors contributed to a net decrease of $191.8 million, or 46.5 percent, in the Share Insurance Fund's reserve for insurance losses during 2013," the agency added.

The total number of credit union failures also declined last year, falling to 17 from the 2012 total of 22.

"Protecting the Share Insurance Fund is NCUA's top priority, and the 2013 year-end results reflect the agency's prudent management and effective approach to regulation," NCUA Chairman Debbie Matz said. "The metrics continue trending in the right direction. Liquidations and assisted mergers fell sharply, with a substantial drop in actual losses to the fund."

The agency today also proposed a rule on the voluntary liquidations of federal credit unions.

The proposed rule would:
  • Permit liquidating federal credit unions to publish required creditor notices in electronic media or newspapers of general circulation;
  • Increase the asset size threshold for requiring multiple creditor notices, by exempting federal credit unions with less than $1 million in assets from the publication requirement, and exempting federal credit unions with less than $50 million in assets from the multiple publication requirement;
  • Specify that preliminary partial distributions to members must not exceed insured account balances;
  • Specify when liquidating federal credit unions must determine member share balances for distribution purposes; and
  • Permit liquidating federal credit unions to distribute member share payouts either by wire or other electronic means, or by mail or personal delivery.
Matz said the changes are intended to modernize the rule and factor in credit union growth since 1993, which was when the rule was last updated.

CUNA attends White House patent reform meeting

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WASHINGTON (2/21/14)--The White House gathered stakeholders together Thursday to discuss patent law reforms--including addressing the plague of patent "trolls"--and the Credit Union National Association attended. 

The White House event focused on the administration's efforts to strengthen the patent system to ensure it encourages innovation, drives investment, and spurs job creation.

U.S. Secretary of Commerce Penny Pritzker, Director of the National Economic Council and Assistant to the President for Economic Policy Gene Sperling, Assistant to the President and U.S. Chief Technology Officer Todd Park, and Deputy Director of the U.S. Patent and Trademark Office (PTO) Michelle Lee were all on hand for the discussion. 

At the event, the PTO unveiled a website to help consumers and businesses who receive demand letters understand their rights and get answers to common questions. 

The online toolkit includes details about specific patents and patent suits. It also includes information and links to services and websites that can help credit unions understand the risks and benefits of litigation or settlement, and pick their best course of action. Credit unions that have recently received a demand letter can find resources to help respond at 

CUNA and the state credit union associations have been active on every level urging lawmakers and the Obama administration that patent reform is needed. 

In particular, CUNA and the leagues support legislation to help curb unfair and deceptive patent demand letters and frivolous patent litigation. In these schemes, so-called "patent trolls" use low-quality patents to extract settlements from credit unions and other targets, thereby abusing the country's patent system. 

CUNA supports a number of legislative proposals currently being considered on both state and federal levels.
CUNA Assistant General Counsel for Special Projects Robin Cook, who attended the White House meeting on CUNA's behalf, also was highlighted in a Feb. 20 post on Inside Counsel, discussing patent troll issues.
The article noted that CUNA is "striving to bring attention to this problem and let credit unions know what they can do to fight back." 

It went on to quote Cook: "Credit unions, coffee shops and other small entities get demand letters or get sued and they don't know how to react. They are not well equipped to deal with the case. They might not have an in-house lawyer or a patent expert available." For this reason, the article said, the demand letters sent by trolls act as a form of extortion, and credit unions often don't know how to make heads or tails of these letters.

'Listening sessions' on CU capital changes announced by NCUA

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WASHINGTON (2/21/14)--The recent risk-based capital proposal and other credit union issues will be open for discussion when the National Credit Union Administration holds three listening sessions this summer. Credit Union National Association President/CEO Bill Cheney on Thursday encouraged NCUA to consider all risk-based capital comments made at the sessions as part of the official administrative record.

Earlier this month, the Credit Union National Association wrote NCUA, encouraging the agency to hold a hearing on the risk based capital proposal. "While any NCUA initiative could be raised by credit unions attending the sessions, the meetings will certainly provide a very important opportunity for credit unions to express their views on the proposal directly to the agency and to hear the responses of their peers," CUNA President/CEO Bill Cheney said in a Thursday letter to the agency.

"We believe the agency, credit unions, and the rulemaking process will benefit from this approach and that all parties will have additional incentives to be prepared with facts and data to support their views," Cheney said.

The sessions, which will be hosted by NCUA Chairman Debbie Matz, are scheduled to be held:
  • June 26 in San Francisco;
  • July 10 in Chicago; and
  • July 17 in the Washington, D.C. area.
All of the three-hour sessions are scheduled to begin at 9 a.m.

Matz noted that previous listening sessions led to regulatory relief and streamlined examination reports. "We are looking forward to another productive series of face-to-face meetings with credit union officials and stakeholders," she added.

Registration for the listening sessions is free. To register, use the resource link.

Wall Street Journal carries CUNA compliance concerns in cannabis piece

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WASHINGTON (2/21/14)--Working with now-legal marijuana dispensaries could be a big compliance headache for credit unions and other financial institutions, and, in some cases, just too difficult to do, Credit Union National Association Federal Compliance Counsel Colleen Kelly said in a Wall Street Journal piece.

The Journal article highlighted some of the unique challenges already faced by financial institutions that have worked with marijuana dispensaries in states where the product is now legal.

For instance, as part of customer/member due diligence rules, a financial institution may have to decide whether a business relationship with a marijuana-related business triggers a "Cole Memo" priority.

The article explains that last August Deputy Attorney General James Cole issued a memo identifying eight priorities for marijuana businesses, such as preventing distribution to minors, diversion of marijuana from states where it is legal to states where it is not, among others.

"If a credit union has a business account for a restaurant or bar, the credit union doesn't have responsibility for making sure minors don't drink or customers don't drive drunk," Kelly told the Journal, highlighting that the marijuana businesses may bring compliance challenges not before seen by financial institutions.

Kelly also pointed out in a recent CUNA CompBlog posting that financial institutions that work with these businesses should be aware of three new types of suspicious activity reports ("Marijuana Limited" SAR, "Marijuana Priority" SAR and "Marijuana Termination" SAR), as well as the seven specific customer due diligence requirements, such as verifying with the state whether the business is duly licensed and registered.

The piece also highlighted Verity CU, Seattle, Wash., which provided 15 checking and savings accounts for medical marijuana businesses in that state in 2012. The credit union stepped out of that business early last year after state authorities said Bank Secrecy Act reports would need to be filed, as marijuana sales were still federally prohibited.

Aside from the regulatory burdens and other potential consequences, Verity CEO John Zmolek said there is one more issue: The smell.

The cash from marijuana businesses reeks, he said. "When we got the cash in we really couldn't do anything with it. We couldn't turn around and give it to any of our other members. It really smelled a lot, like marijuana. Not every customer wants to have marijuana-smelling cash," he told the Journal.

CU risk-based capital comments will get boost from CUNA tool

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WASHINGTON (2/21/14)--Is your credit union, like many others, concerned by the National Credit Union Administration's risk-based capital proposal? The Credit Union National Association has developed a new tool, the Risk Based Capital Action Center, which will allow CUNA members to directly write NCUA in a quick and efficient way and submit their comments electronically with the click of a mouse.

The page, hosted at, provides background information on the rule and highlights CUNA's initial concerns about the rule.

"We think that comment letters on this proposal will make a real difference, and so it is very important that we generate as many as possible," CUNA President/CEO Bill Cheney said.

As CUNA General Counsel Eric Richard noted, "the tool helps credit unions craft their letters through a series of responses to fill-in-the-blank questions. Users are not required to address all of the questions, just the ones on which they would like to comment."

Users can also comment on other topics presented by the proposal that are not addressed by the questions.

The proposal would restructure NCUA's current prompt corrective action regulation to include calculation of a capital-to-risk-assets ratio, analogous to Basel III for community banks. The risk weights would be substantially different, and the proposal would impose higher capital requirements for credit unions with higher concentrations of assets in real estate loans, member business loans, longer term investments and some other assets.

The proposal would apply to credit unions with assets of more than $50 million.

CUNA estimates that the rule, if made final and implemented, would lead to credit unions needing to hold as much as $7.3 billion in additional capital.

Although a final rule is not likely to go into effect until 2016 or later, CUNA Deputy General Counsel Mary Dunn said credit unions need to consider the proposal and its impact on their operations and submit their comments to the NCUA, state credit union leagues and CUNA.

For the CUNA tool and more on the proposed rule, use the resource link.